Euro zone November business growth acceleration may be temporary -PMI

LONDON (Reuters) – Euro zone business activity accelerated last month but the bounce may be temporary as demand growth weakened and fears about the Omicron coronavirus variant put a dent in optimism, a survey showed on Friday.

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IHS Markit’s Flash Composite Purchasing Managers’ Index (PMI), a good gauge of overall economic health, jumped to 55.4 in November from 54.2 in October, below an earlier 55.8 “flash” estimate but still above the 50 mark separating growth from contraction.

“An improvement in the rate of economic growth signalled by the euro zone PMI looks likely to be short-lived,” said Chris Williamson, chief business economist at IHS Markit.

“Not only did demand growth weaken, but firms’ expectations of future growth also sank lower as worries about the pandemic intensified again.”

The new business index dropped to 54.7 from 55.1, its lowest reading since April.

A final PMI for the bloc’s dominant service industry did rise to 55.9 from 54.6 although that was well below the preliminary estimate of 56.6.

But the business expectations index, which measures optimism about the year ahead, sank to 66.7 from 69.0 – its lowest level since February.

As Europe battles another wave of coronavirus infections governments have reimposed restrictions and the World Health Organization said on Monday the Omicron variant carried a very high risk of infection surges.

“With the data collected prior to news of the Omicron variant, sentiment about near-term prospects will inevitably have been knocked even further,” Williamson said.

Restrictions have a bigger impact on services than manufacturing and a factory PMI on Wednesday showed growth accelerated slightly last month but supply chain bottlenecks worsened, putting a cap on output and driving the cost of raw materials up at the fastest rate in over two decades.

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